1. March 16, 2012 Asset Backed AERT
Harley Program on Gruise Conlrol
Ha,loy-Dayldrol has set its securitization oudook for this
year.
Th€ Milwaukee company expe.ts to complete two deals
backed by its motorcycle loans, the first of which would be a
$500 million-plus offering thal! likely to hit the market byJune
l. Afollow-up ofsimilarsize woold follow later in the year
A third issue could even be in the cards if stronger-than-
expected sales continue beyond midyear. Cililroup, J.P t$orgrn
and nBS ryill be among the candidates to run the book on each
of the offerings.
Th€ projected volume signals that Harley may be setding
into an issuance pattern after a few y€ars ofintermittent activ-
ity. Harley had been good for three or four deals per Far up
until the €redit crisis, which brought a slolydown in itsbusiness.
It returned with four oflerings totaling S2.4 billion in 2009. But
20l0broughtjustone transaction for $600 million, with Harley
blaming the pullback on a provision in the Flmnclal Accoulrt.
lrg Stt0dtrG Botdl FAS 166 and 167 rules under which it no
longer would be able to book gains on its deals' residual interest.
Initially, Harley was expecled to follow with a single deal in
201 I as rvell. But it rvound up completjng two transactions add-
ing up to $l.l billion a leyel of produ.tion that iti expected
to match in 2012. Harley's most recent securilization was a
$525 million issue that priced Nov.2 via t.P Morgan and Citi.
Harley also extended a $600 million commercial'paper
conduil facility in Seplember?011, adding a year tolh€ credit
line. t
Fund Eyes Equity-Sharing Strategy
A former banker who wants to introduce Euopean'style
equity-sharing arrangements to the U.S. housing market is
seekiDg to raise $20 million for a fund that would buy stakes in
foreclosed homes.
nalph Uu, who spent years stru€luring derivatives at Cilna
Et.orbdgm Bank, J.P. organ and llos, calls the private equity
vehicle Farjho lund - for llexible and reversible ioint home
ownership. Ihe fund would buy homes in foreclosure Fom
bank and other mortgage lendels, then sell stakes in those
properties to individuals who couldnt afford doien payments
on tleir o}!n. ihe exit nrategy: As home values improv€, indi-
vidual homeowners rvould buy out the stakes held by the tund
or the properties would be sold.
lle strat€gy is a variation on a financing mechanism that s
popular in parts of Europe
- and especially the U.K., where
both government agencies and private
'nvestors
form partner-
shipswith individual homeowne$. Liu, operating ftom a Nerv,
porr Beach, Calil, nrm called Advancod o-Hnanclal T€cilolo-
ghs, views Farjho Fund as a kind ofpilot project thatwill allow
him to demonstrate how equity-sharing partnerships could
help revive the U.S. housing market.
The planned fund would use proprietary software developed
by Liu to link private investors with individuals in Deed ofmore
equity. Liu said the soft are already has identified hundreds of
home buyers that could be potential pann€rs- fte lind would
enter seven year.ontmcts with buyers. During the life ofthe
contracts, the fund would collect financing charges ftom the
home br:yers.
Giyen the long'term nature ofth€ strategy, the fund would
lock up inv€stor capital foreight years.
Liu eventually hopes to broaden $e strategy by linking
pdvate investors with distressed homeowners r{ho need cash
infusions to remain in their homes. He is working on a deriv-
alives-based platform called SwapRent that would connect in-
vestors with existing homeowners. .t
Gitigroup... r'". og"
'
market once or twice a year
- a pace that wouldnl have been
nearly enough to keep Van Deventer and his crew engaged.
"Hugh has be€n at Citi for more than 20 years. The bank is
one of the original securitizers and probably the largest securi
tizer in the c.edit-card space. So them saying we are not going
to have a big emphasis on securitization js a huge development
for the market;'one industry play€r said.
Van Deventer joined Cil i in theeariy 1990s followingastint
as an attorney at Skaddon Arps. H€began as a lawyerfocusing
on thebank's then-fledgling card-bond program. From there,
he moved into lreasury. His duties included structuring
deals backed by Citi -originated loans, keeping up with rating
agencies an<l o!'€rseeing compliance efforts. He also kept
watch over funding ofassets via Citi run commer.ial paper
conduits,
Along with cards bonds, those responsibilities put Van
Devent€r in charge of deals ba.ked by auto loans. But Citil
presenc€ as an issuer ofthose deals endedwjth tbe bank's 2010
sale of iti auto-lending arm to Sanco Santamhr, Van Deventer
also had some involvement in putting together deals for Citi's
educationlending division, wbich eventilally was sold as well.
He wasn t involved in the institution's mortgage operation.
While rumors have circulated in recent years that Citi would
sell its cad-lending busin€ss as part of efforts to cope wilh 6-
nancial-crisis losses, that talk eventually quieted down. From a
funding standpoint, Citi occasionally weighed whelher it made
sense to conlinue issuing asset-backed bonds even before the
market downturn. Horvevet the realblow 1o its program came
with the 2010 implementation of the Flnanclal Aocollrllng
SLrdtrds Soardl FAS 155 and 167 rules. Those codes forced
banks to keep securitized card receirables on their balance
sheets, prompting most of them to pull back ftom the market
or stop jssuiDg allogether "Deposih are dirt cheap. From an
economic standpoint, it makes nosense for Citi to keep selling
bondsi another source said. .!.
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